As the appointment of Gates to replace Rumsfeld shows (although Rumsfeld was no neo-con; just a realist convinced in two things: Terrorism as an existential threat to the state, and the need to transform the US military), one of the dominant reactions to the on-going debacle that is Iraq is a return to the basic tenets of realism. As Kaplan puts it, "U.S. foreign policy will be defined by an obdurate caution, coupled with a ruthless, almost mathematical application of balance-of-power principles." According to Kagan and Kristol, a return to realism would mean "the United States should turn a blind eye to Iran's nuclear weapons program, in exchange for Iran's help in easing our retreat from Iraq" and "putting pressure on Israel to deal in a more forthcoming way with the Hamas-dominated Palestinian government. Israel should be induced to make concessions despite the ongoing violence and the refusal of Hamas to ratify even Yasser Arafat's acceptance of Israel's right to exist."

If we learn anything from Iraq, it's that the US must be exceedingly careful if it ever thinks about attempting large-scale coercive nation-building. But that lesson must not force the US to retreat from its liberal mission. The US does not always act in accordance with its principles, but it is unthinkable that the US would NEVER do so. It was the US that rebuilt the shattered European and Japanese states after World War II, it was the US that presses Zimbabwe and Burma to improve their human rights records, it is the US that is standing firm in its refusal to negotiate with North Korea, it is the US that is keeping attention focused on Darfur. And without the security umbrella provided by US military hegemony, issues of human security such as the ICC would be nowhere near the international agenda.

Iraq should, and very likely has, taught the US humility and restraint, both of which are valuable and important to learn. But those lessons must not be taken too far. A retreat to a realist foreign policy would betray the ideals of this country, and would abandon the rest of the world to misery.

The Manama Dialogue is the primary security institution in the Persian Gulf and will see the greatest ever involvement of the national security establishments of the region with key outside powers this year. As in previous years, the Dialogue will provide a unique forum for the discussion of the regional security challenges by the most senior authorities responsible for defence, foreign policy and security issues in the participating states.

The summit will be opened formally by the Crown Prince of the Kingdom of Bahrain, His Highness Sheikh Salman Bin Hamad Al Khalifa, who will deliver the Keynote Address on Friday 8 December. On Saturday 9 December, the US National Security Advisor, Stephen Hadley, will make a key statement on US security strategy in the Persian Gulf. Delegation leaders from the other participating countries will also deliver official policy statements throughout the course of the weekend. Plenary session subjects include: “The U.S. and Gulf Security,” “Regional Perceptions of Gulf Security,” “The Gulf and the East,” “Security Guarantees and Regional Stability,” “The Situation in Iraq,” “The Gulf and Europe,” and “Iran and Outside Powers.”

This should be a fascinating look at the major security issues of the Persian Gulf. The conference organizers will be sending me summaries of the plenary sessions immediately after their conclusion, after which I will post the summaries and provide analysis.

Thursday, November 16, 2006

Milton Friedman died today. There has been no more passionate, intelligent, and accurate voice for the role of capitalism in protecting and preserving freedom and liberty. If you've never read the first two chapters of Capitalism and Freedom, run out and get a copy immediately. You'll find no better statement of why only capitalism can ensure our rights, liberties and freedoms.

He will be missed.

November 16, 2006

Milton Friedman, a Leading Economist, Dies at 94

Milton Friedman, the grandmaster of conservative economic theory in the postwar era and a prime force in the movement of nations toward lesser government and greater reliance on free markets and individual responsibility, died today. He was 94 years old.

A spokesman for the Milton and Rose D. Friedman Foundation confirmed his death.

Conservative and liberal colleagues alike viewed Mr. Friedman as one of the 20th century’s leading economic scholars, on a par with giants like John Maynard Keynes, Joseph A. Schumpeter and Paul Samuelson.

Flying the flag of economic conservatism, Mr. Friedman led the postwar challenge to the hallowed theories of Lord Keynes, the British economist who maintained that governments had a duty to help capitalistic economies through periods of recession and to prevent boom times from exploding into high inflation.

In Professor Friedman’s view, government had the opposite obligation: to keep its hands off the economy, to let the free market do its work. He was a spiritual heir to Adam Smith, the 18th-century founder of the science of economics and proponent of laissez-faire: that government governs best which governs least.

The only economic lever that Mr. Friedman would allow government to use was the one that controlled the supply of money — a monetarist view that had gone out of favor when he embraced it in the 1950s. He went on to record a signal achievement, predicting the unprecedented combination of rising unemployment and rising inflation that came to be called stagflation. His work earned him the Nobel Memorial Prize in Economic Science in 1976.

Rarely, his colleagues said, did anyone have such impact on both his own profession and on government. Though he never served officially in the halls of power, he was always around them, as an adviser and theorist. In time, his influence was felt around the world.

“His thinking has so permeated modern macroeconomics that the worst pitfall in reading him today is to fail to appreciate the originality and even revolutionary character of his ideas,” said Ben S. Bernanke, now chairman of the Federal Reserve, in a speech honoring Mr. Friedman in 2003.

Professor Friedman also a leading force in the rise of the “Chicago School” of economics, a conservative group within the department of economics at the University of Chicago. He and his colleagues became a counterforce to their liberal counterparts at the Massachusetts Institute of Technology and Harvard, influencing close to a dozen American winners of the Nobel prize in economics.

It was not only Mr. Friedman’s anti-statist and free-market views that held sway over his colleagues. There was also his willingness to create a place where independent thinkers could be encouraged to take unconventional stands as long as they were prepared to do battle to support them.

“Most economics departments are like country clubs,” said James J. Heckman, a Chicago faculty member and Nobel laureate who earned his doctorate at Princeton. “But at Chicago you are only as good as your last paper.”

Alan Greenspan, the former Federal Reserve chairman, said of Mr. Friedman in an interview Tuesday: “From a longer-term point of view, it’s his academic achievements which will have lasting import. But I would not dismiss the profound impact he has already had on the American public’s view.”

Mr. Greenspan said that Mr. Friedman came along at an opportune time. The Keynesian consensus among economists, which had worked well from the 1930s, could not explain the stagflation of the 1970s, he said.

But he also said Mr. Friedman had made a broader political argument, which is at the heart of his classic book “Capitalism and Freedom”: that you have to have economic freedom in order to have political freedom.

As a libertarian, Mr. Friedman advocated legalizing drugs and generally opposed public education and the state’s power to license doctors, automobile drivers and others. He was criticized for those views, but he stood by them, arguing that prohibiting, regulating or licensing human behavior either does not work or creates inefficient bureaucracies.

Mr. Friedman insisted that unimpeded private competition produced better results than government systems. “Try talking French with someone who studied it in public school,” he argued, “then with a Berlitz graduate.”

Once, when accused of going overboard in his anti-statism, he said, “In every generation, there’s got to be somebody who goes the whole way, and that’s why I believe as I do.”

In the long period of prosperity after World War II, when Keynesian economics was riding high in the West, Mr. Friedman alone warned of trouble ahead, asserting that policies based on Keynesian theory were part of the problem.

Even as he was being dismissed as an economic “flat earther,” he predicted in the 1960s that the end of the boom was at hand. Expect unemployment to grow, he said, and inflation to rise, at the same time. The prediction was borne out in the 1970s. Paul Samuelson labeled the phenomenon “stagflation.”

Mr. Friedman’s analysis and prediction were regarded as a stunning intellectual accomplishment and contributed to his earning the Nobel prize for his monetary theories. He was also cited for his analyses of consumer savings and of the causes of the Great Depression; he blamed government in large part for it, saying government had bungled early chances for recovery. His prestige and that of the Chicago school soared.

Government leaders like President Ronald Reagan and Prime Minister Margaret Thatcher of Britain were heavily influenced by his views. So was the quietly building opposition to Communism within the East Bloc, including intellectuals like Vaclav Klaus, who later became prime minister of the Czech Republic.

As the end of the century approached, Professor Friedman said events had made his views seem only more valid than when he had first formed them. One event was the fall of socialism and Communism, which the economist Friedrich A. Hayek had predicted in 1944 in “Road to Serfdom.” In an introduction to the 50th-anniversary edition of the book, Professor Friedman wrote that it was now clear that “progress could be achieved only in an order in which government activity is limited primarily to establishing the framework with which individuals are free to pursue their own objectives.”

“The free market is the only mechanism that has ever been discovered for achieving participatory democracy,” he said.

Professor Friedman was acknowledged to be a brilliant statistician and logician. To his critics, however, he sometimes pushed his data too far. To them, the debate over the advantages or disadvantages of an unregulated free market was far from over.

Milton Friedman was born in Brooklyn on July 31, 1912, one of four children, and the only son, of Jeno S. Friedman and Sarah Landau Friedman. His parents worked briefly in New York sweatshops, then moved their family to Rahway, N.J., where they opened a clothing store.

Mr. Friedman’s father died in his son’s senior year at Rahway High School. Young Milton later waited on tables and clerked in stores to supplement a scholarship he had earned at Rutgers University. He entered Rutgers in 1929, the year the stock market crashed and the Depression began.

Mr. Friedman attributed his success to “accidents”: the immigration of his teenage parents from Czechoslovakia, enabling him to be an American and not the citizen of a Soviet-bloc state; the skill of a high-school geometry teacher who showed him a connection between Keats’s “Ode to a Grecian Urn” and the Pythagorean theorem, allowing him to see the beauty in the mathematical truth that the square of the sides of a right triangle equals the square of the hypotenuse; the receipt of a scholarship that enabled him to attend Rutgers and there have Arthur F. Burns and Homer Jones as teachers.

He said Mr. Burns, who later became chairman of the Federal Reserve Board, instilled in him a passion for scientific integrity and accuracy in economics; Mr. Jones, who was teaching at Rutgers while pursuing a doctorate at the University of Chicago, interested him in monetary policy and a graduate school career at Chicago.

In his first economic-theory class at Chicago, he was the beneficiary of another accident — the fact that his last name began with an “F.” The class was seated alphabetically, and he was placed next to Rose Director, a master’s-degree candidate from Portland, Ore. That seating arrangement shaped his whole life, he said. He married Ms. Director six years later. And she, after becoming an important economist in her own right, helped Mr. Friedman form his ideas and maintain his intellectual rigor.

After he became something of a celebrity, Mr. Friedman said, many people became reluctant to challenge him directly. “They can’t come right out and say something stinks,” he said. “Rose can.”

In 1998, he and his wife published a memoir, “Two Lucky People” (University of Chicago Press.

His wife survives him, along with a son, David Friedman, and a daughter, Janet Martel.

That fateful university class also introduced him to Jacob Viner, regarded as a great theorist and historian of economic thought. Professor Viner convinced Mr. Friedman that economic theory need not be a mere set of disjointed propositions but rather could be developed into a logical and coherent prescription for action.

Mr. Friedman won a fellowship to do his doctoral work at Columbia, where the emphasis was on statistics and empirical evidence. He studied there with Simon Kuznets, another American Nobel laureate. The two turned Mr. Friedman’s thesis into a book, “Income from Independent Professional Practice.” It was the first of more than a dozen books that Mr. Friedman wrote alone or with others.

It was also the first of many “Friedman controversies.” One finding of the book was that the American Medical Association exerted monopolistic pressure on the incomes of doctors; as a result, the authors said, patients were unable to reap the benefits of lower fees from any real price competition among doctors. The A.M.A., after obtaining a galley copy of the book, challenged that conclusion and forced the publisher to delay publication. But the authors did not budge. The book was eventually published, unchanged.

During the first two years of World War II, Mr. Friedman was an economist in the Treasury Department’s division of taxation. “Rose has never forgiven me for the part I played in devising and developing withholding for the income tax,” he said. “There is no doubt that it would not have been possible to collect the amount of taxes imposed during World War II without withholding taxes at the source.

“But it is also true,” he went on, “that the existence of withholding has made it possible for taxes to be higher after the war than they otherwise could have been. So I have a good deal of sympathy for the view that, however necessary withholding may have been for wartime purposes, its existence has had some negative effects in the postwar period.”

After the war, he returned to the University of Chicago, becoming a full professor in 1948 and commencing his campaign against Keynesian economics. Robert M. Solow, of M.I.T., a Nobel laureate who often disagreed with Mr. Friedman, called him one of “the greatest debaters of all time.” But his wisecracking style could infuriate opponents like the British economist Joan Robinson, who called him a “paper tiger.”

Mr. Samuelson, also of M.I.T., who was not above wisecracking himself, had a standard line in his economics classes that always brought down the house: “Just because Milton Friedman says it doesn’t mean that it’s necessarily untrue.”

But Professor Samuelson said he never joked in class unless he was serious — that his friend and intellectual opponent was, in fact, often right when at first he sounded wrong.

Mr. Friedman’s opposition to rent control after World War II, for example, incurred the wrath of many colleagues. They took it as an unpatriotic criticism of economic policies that had been successful in helping the nation mobilize for war. Later, Mr. Sameulson said, “probably 98 percent of them would agree that he was right.”

In the early 1950s, Mr. Friedman started flogging a “decomposing horse,” as Mrs. Thatcher’s chief economic adviser, Alan Waters, later put it. The horse that most economists thought long dead was the monetarist theory that the supply of money in circulation and readily accessible in banks was the dominant force — or in Mr. Friedman’s view, the only force — that should be used in shaping the economy.

In the 1963 book “A Monetary History of the United States, 1867-1960,” which he wrote with Anna Jacobson Schwartz, Mr. Friedman compiled statistics to buttress his theory that recessions had been preceded by declines in the money supply. The same was true of the Great Depression, he found, in attributing it to Federal Reserve bungling. And it was an oversupply, he argued, that caused inflation.

In the late 1960s, Mr. Friedman used his knowledge of empirical evidence and statistics to calculate that Keynesian government programs had the effect of constantly increasing the money supply, a practice that over time was seriously inflationary.

Paul Krugman, a Princeton University economist and New York Times columnist, said Mr. Friedman then managed “one of the decisive intellectual achievements of postwar economics,” predicting the unprecedented combination of rising unemployment and rising inflation that later came to be called stagflation.

In this regard, his Nobel Prize cited his contribution to the now famous concept “the natural rate of unemployment.” Under this thesis, the unemployment rate cannot be driven below a certain level without provoking an acceleration in the inflation rate. Price inflation was linked to wage inflation, and wage inflation depended on the inflationary expectations of employers and workers in their bargaining.

A spiral developed. Wages and prices rose until expectations came into line with reality, usually at the natural rate of unemployment. Once that rate is achieved, any attempt to drive down unemployment through expansionary government policies is inflationary, according to Mr. Friedman’s thesis, which he unveiled in a speech to the American Economic Association in 1968.

For years economists have tried to pinpoint the elusive natural rate, without much success, particularly in recent years.

Mr. Friedman, the iconoclast, was right on the big economic issue of that time — inflation. And his prescription — to have the governors of the Federal Reserve System keep the money supply growing steadily without big fluctuations — figured in the thinking of economic policy makers around the world in the 1980s.

Mr. Friedman also pursued his attack on Keynesianism in a more general way. He warned that a government allowed to regulate the economy could not be trusted to keep its hands off individual liberties.

He had first been exposed to this line of attack through his association with Mr. Hayek, who was predicting the failure of Communism and “collectivist orthodoxy” in the early 1940’s in his book “Road to Serfdom.” In an introduction to a 1971 German edition, Professor Friedman called the book a revelation particularly to the young men and women who had been in the armed forces during the war.”

“ Their recent experience had enhanced their appreciation of the value and meaning of individual freedom,” he wrote.

In 1962, Mr. Friedman took on President John F. Kennedy’s popular inaugural exhortation: “Ask not what your country can do for you. Ask what you can do for your country.” In an introduction to “Capitalism and Freedom,” a collection of his writings and lectures, he said President Kennedy had got it wrong: You should ask neither.

“What your country can do for you,” Mr. Friedman said, implies that the government is the patron, the citizen the ward; and “what you can do for your country” assumes that the government is the master, the citizen the servant. Rather, he said, you should ask, “What I and my compatriots can do through government to help discharge our individual responsibilities, to achieve our several goals and purposes, and above all protect our freedom.”

It was not that Mr. Friedman believed in no government. He is credited with devising the negative income tax, which in a modern variant — the earned income tax credit — increases the incomes of the working poor. He also argued that government should give the poor vouchers to attend the private schools he thought superior to public ones.

In forums he would spar over the role of government with his more liberal adversaries, including John Kenneth Galbraith, who was also a longtime friend (and who died in May 2006). The two would often share a stage, presenting a study in contrasts as much visual as intellectual: Mr. Friedman stood 5 feet 3; Mr. Galbraith, 6 feet 8. Though he had helped ignite the conservative rebellion after World War II, together with intellectuals like Russell Kirk, William F. Buckley Jr. and Ayn Rand, Mr. Friedman had little or no influence on the administrations of Presidents Dwight D. Eisenhower, Kennedy, Lyndon B. Johnson and Richard M. Nixon. President Nixon, in fact, once described himself as a Keynesian.

It was frustrating period for Mr. Friedman. He said that during the Nixon years the talk was still of urban crises solvable only by government programs that he was convinced would make things worse, or of environmental problems produced by “rapacious businessmen who were expected to discharge their social responsibility instead of simply operating their enterprises to make the most profit.”

But then, after the 1970s stagflation, with Keynesian tools seemingly broken or outmoded, and with Ronald Reagan headed for the White House, Mr. Friedman’s hour arrived. His power and influence were acknowledged and celebrated in Washington.

With his wife, Rose Director Friedman, in 1978 he brought out a best-selling general-interest book, “Free to Choose.” and went on an 18-month tour, from Hong Kong to Ottumwa, Iowa, preaching that government regulation and interference in the free market was the stifling bane of modern society. The tour became the subject and Mr. Friedman the star of a 10-part series on public television in 1980.

In 1983, having retired from teaching, he became a senior fellow at the Hoover Institution at Stanford University.

The economic expansion in the 1980s resulted from the Reagan Administration’s lowered tax rates and deregulation, Professor Friedman said. But then the tide turned again. The expansion, he argued, was halted by Presidents Bush’s “reverse-Reaganomics” tax increase.

What was worse, by the mid-1980s, as the finance and banking industries began undergoing upheavals and money began shifting unpredictably, Mr. Friedman’s own monetarist predictions — of what would happen to the economy and inflation as a result of specific increases in the money supply — failed to hold up. Confidence in his monetarism theory waned.

Professor Robert Solow of M.I.T., a Nobel laureate himself, and other liberal economists continued to raise questions about Mr. Friedman’s theories: Did not President Reagan, and by extension Professor Friedman, they asked, revert to Keynesianism once in power?

“The boom that lasted from 1982 to 1990 was engineered by the Reagan administration in a straightforward Keynsian way by rising spending and lowered taxes, a classic case of an expansionary budget deficit,” Mr. Solow said. “In fairness to Milton, however, it should be said that one of the reasons for his wanting a tax reduction was to force the spending cuts that he presumed would follow.”

Professor Samuelson said that “Milton Friedman thought of himself as a man of science but was in fact more full of passion than he knew.”

Mr. Friedman remained the guiding light to American conservatives. It was he, for example, who provided the economic theory behind such “prescriptions for action,” as his one-time professor, Jacob Viner put it, as the landslide Republican victory in the off-year Congressional elections of 1994.

By then the 5-feet 3-inch 130-pound Professor Friedman had grown into a giant of economics abroad as well. Mr. Friedman was sharply criticized for his role in providing intellectual guidance on economic matters to the military regime in Chile that engineered a coup in early 1970s against the democratically elected president, Salvador Allende. But, for Mr. Friedman, that was just a bump in the road.

In Vietnam, whose constitution was amended in 1986 to guarantee the rights of private property, the writings of Mr. Friedman were circulated at the highest levels of government. “Privatize,” he told Chinese scholars at a meeting in Shanghai’s Fudan University, as he told those in Moscow and elsewhere in Eastern Europe: “Speed the conversion of state-run enterprises to private ownership.” They did.

Mr. Friedman had long since ceased to be called a flat-earther by anyone. “What was really so important about him,” said W. Allen Wallis, a former classmate and later faculty colleague at the University of Chicago, “was his tremendous basic intelligence, his ingenuity, perseverance, his way of getting to the bottom of things — of looking at them in a new way that turned out to be right.”

Wednesday, November 15, 2006

The Associated Press is reporting that Lieutenant Ehren Watada will be court-martialed for his refusal to deploy with his unit to Iraq. Watada will be charged with missing troop movements, conduct unbecoming of an officer, and contempt towards officials for comments he made about President Bush (military officers have a legal duty not to publically disparage their superiors). Watada's defense is that the Iraq War is illegal, and thus his obligation as a US solider to refuse unlawful orders precludes him from deploying. According to Watada's lawyer, “This case is really about the duty of individual soldiers to look at the facts and fulfill their obligation to national and international law.”

Since the attempt by Nazis to use the "only following orders" defense in the Nuremberg trials, there is a strong belief that individual soldiers must be allowed to refuse illegal orders. But, can it be claimed that the Iraq war is illegal? Certainly not under US law. The war was most definitely authorized by the US Congress. But can Watada defend his actions by claiming that the invasion and occupation are illegal under international law? After all, the Supreme Court in Hamdan v. Rumsfeld found that the Geneva Conventions are binding law on the US and limit the ability of the president to use military commissions.

However, the Supremes did something else in Hamdan. While international law may exist and may in fact, when signed by the president and ratified by the Senate be the binding equivalent of domestic law, it is not sacrosanct or immutable. In fact, the Court told the Bush Administration that it could in fact convene military tribunals in the desired form, but only if Congress passed a law permitting it to do so. Thus, international law only binds the US so far as Congress hasn't superseded it with a new law. Since the US Congress has in fact authorized the Iraq War, it's legal status vis-a-vis international law is moot.

Unfortunately for Lt. Watada, his defense will fail, and he will go to jail for a very long time.

What's disturbing is that the bill, which Democratic leaders had referred to as a "slam dunk," was so widely opposed by Democrats. While Republicans voted 2-1 for giving Vietnam PNTR, Democrats split almost evenly on the issue. As I blogged about yesterday, the prospects of anti-trade Democrats scuttling international free trade is bad for many MANY reasons. It's bad for the domestic economy, it's bad for developing countries, it's bad for the poor here and abroad. But it's also bad on larger issues as well. Free trade and the international economy is a critical element of the logic of the democratic peace, and manifests itself in, for example, the current policy of engagement with China. Free trade is critical for institutionalizing international relationships, which helps states escape the anarchic pressures of the international system that creates security dilemmas, arms races, and raises tensions. Free trade is a vital asset of soft power. Free trade is so important to so many aspects of national and international security that undermining it could be said to be, without exaggeration, disastrous.

Things are likely going to get worse when the newly-elected nationalistic illiberal Democrats take their seats. Will President Bush expend his precious (and limited) political capital to advance free trade? Not likely, given the other issues on his plate. However, none of those issues, Iraq included, are likely as important to the economic health of this country, the international system, and international peace and stability as free trade. A Democratic Congress must not be allowed to block the spread of trade.

Monday, November 13, 2006

As Buchanan makes clear here, he remains a staunch opponent for free trade, disguising his economic philosophy with a flag of patriotic nationalism. He asks:

But if the free-trade era is over, what will succeed it?

A new era of economic nationalism. The new Congress will demand restoration of its traditional power to help in shaping trade policy. When the U.S. trade deficit for 2006 comes in this February, it will hit $800 billion, pouring more fuel on the fire.

A rising spirit of nationalism is evident everywhere in this election, not simply in the economic realm. Americans are weary of sacrificing their soldier-sons for Iraqi democracy. They are weary of shelling out foreign aid to regimes that endlessly hector America at the United Nations. They are tired of sacrificing the interests of American workers on the altar of an abstraction called the Global Economy. They are fed up with allies long on advice and short on assistance.

Other leaders in other lands look out for what they think is best for their nations and people. Abstractions such as globalism and free trade take a back seat when national interests are involved.

We are entered upon a new era, a nationalist era, and it will not be long before the voices of that era begin to be heard.

Free trade was, in a sense, the "stealth" issue of the recent elections, as it received little public attention and yet is perhaps the foreign policy issue on which Congress can have the most effect. And while few candidates made trade their main issue, there is a lot of evidence that many of the new Congresspeople share Buchanan's opposition to free trade. For example, Jacob Weisberg writes in Slate:

Many of the Democrats who recaptured seats held by Republicans have been described as moderates or social conservatives, who will be out of synch with Speaker-to-be Nancy Pelosi. The better term, with props to Fareed Zakaria, is probably illiberal Democrats. Most of those who reclaimed Republican seats ran hard against free trade, globalization, and any sort of moderate immigration policy. That these Democrats won makes it likely that others will take up their reactionary call. Some of the newcomers may even be foolish enough to try to govern on the basis of their misguided theory.

...An even harder-edged nationalism defined many of the critical House races, where Democrats called for a moratorium on trade agreements, for canceling existing ones, or, in some cases, for slapping protective trade tariffs on China. These candidates also lumped illegal immigrants together with terrorists and demanded fencing and militarization of the Mexican border. In Pennsylvania, Democratic challengers Chris Carney and Patrick Murphy defeated Republican incumbents by accusing them of destroying good jobs by voting for the Central American Free Trade Agreement and being soft on illegal immigration. "Fair trade" candidates also won back formerly Republican seats in Ohio, Indiana, Iowa, North Carolina, and Wisconsin. Jerry McNerney, who defeated 14-year Republican incumbent Richard Pombo in California, says on his Web site: "I am deeply worried about the way this nation is plunging head-long into the global economy without a plan or a national consensus."

During their long years in the wilderness, Democrats lashed out against trade and globalization, even though denying the economic case for trade is like pretending that tax cuts pay for themselves. Now that they have won Congress, the Democrats must prove that they are more than the mirror image of their opponents. This means reviving the pro-market centrism of the Clinton era -- a spirit that lives on in the form of the Hamilton Project.

...During the recent congressional campaign, Democratic candidates mostly had the right diagnosis and the wrong prescriptions. They saw that middle-class and poor Americans have not experienced wage gains during the past five years of growth, and they saw that families are one health crisis away from financial hardship. But the Democrats' remedies -- bashing Wal-Mart, railing against globalization -- offered little more than symbolism for the poor and middle class while promising damage to the economy.

Why is trade is a critical issue? Because protectionism, even when garbed with the much nicer "fair trade" moniker, can create devasting economic inefficiencies. For example, Walter Williams points out:

The Washington-based Institute for International Economics has assembled data that might help with the answer. Tariffs and quotas on imported sugar saved 2,261 jobs during the 1990s. As a result of those restrictions, the average household pays $21 more per year for sugar. The total cost, nationally, sums to $826,000 for each job saved. Trade restrictions on luggage saved 226 jobs and cost consumers $1.2 million in higher prices for each job saved. Restrictions on apparel and textiles saved 168,786 jobs at a cost of nearly $200,000 for each job saved....

A lot is at stake for those in the sugar industry, workers and bosses. They dedicate huge resources to pressure Congress into enacting trade restrictions. But how many of us consumers will devote the same resources to unseat a congressman who voted for sugar restrictions that forced us to pay $21 more for the sugar our family uses? It's the problem of visible beneficiaries of trade restrictions, sugar workers and sugar bosses, gaining at the expense of invisible victims -- sugar consumers. We might think of it as congressional price-gouging.

It gets worse. Not only is protectionism an unabashed economic loser, it also most hurts the very people the Democratics typically claim as their constituents. From Edward Gresser's Toughest on the Poor in the Nov/Dec issue of Foreign Affairs:

Tariff policy, without any deliberate intent, has evolved into something astonishingly tough on the poor. Young single mothers buying cheap clothes and shoes now pay tariff rates five to ten times higher than middle-class or rich families pay in elite stores. Very poor countries such as Cambodia or Bangladesh face tariffs 15 times those applied to wealthy nations and oil exporters.

Last year, the U.S. Customs Service collected $18.6 billion in tariff revenue on $1.1 trillion in goods imports -- meaning the effective U.S. tariff rate is 1.6 percent. But the low overall average masks something more troubling. Tariffs on industrial imports are not just low but extremelylow. For expensive consumer goods such as cars, appliances, and televisions, rates are also generally low and are further reduced in practice by trade agreements with Mexico and Canada. But for light consumer goods, the story is different. Tariffs on these products (with a fewexceptions, such as toys and furniture) remain at levels other industries last saw in the 1960s and 1970s: for instance, 8.7 percent for cutlery and tableware, 13.8 percent for suitcases and handbags, 10 percent for bicycles, and 11.4 percent for shoes and clothes, the largest category of consumer imports for the United States. In effect, the United States now has two tariff systems.One, for low- tech consumer goods, has an average rate of 10.5 percent. The other, for everything else, has an average rate of 0.8 percent.

Cheap sneakers valued at $3 or less per pair carry tariffs of 48 percent (a rate, incidentally, far above that of any product on the administration’s steel list). Virtually none of these shoes is made in the United States. Last year, the United States imported 16 million pairs of these sneakers, at a total cost of $35 million. Thus the average price at the border was $2.20 per pair. The Treasury Department then collected $17 million in tariffs, adding another $1.06 per pair to the buyers’ cost. The extra dollar and change is then magnified by retail markups of around 40 percent and state sales taxes of about 5 percent to raise the final consumer price of the sneakers from about $3.25 (without tariffs) to $4.80 per pair (with tariffs).

Such tariff-based overpricing exists, though at less dramatic levels, in store aisles stocking baby clothes, T-shirts, silverware, and other typical family products. Because it is most pronounced on the cheapest shoes and clothes, its effect falls most heavily on single-parent families.Incomes for these families are very low: at an average of about $25,100 per year, they are about 40 percent of a typical two-parent family’s income. But single-parent families face shoe and clothing bills nearly as high as those of wealthier families. In total, the average singleparentfamily spends nearly $2,000 a year on clothes and shoes. Depending on the mix of purchases, as much as $400 of this total may simply be price inflation due to tariffs. Budgets for other tariffed goods, though smaller, are still a larger expense relative to income for poor families than for rich families. And so single-parent families lose much more of their income to tariffs than do otherfamilies.

Average tariffs on European exports to the United States -- primarily cars, power equipment, computers, and chemicals -- now barely exceed one percent. Developing countries such as Malaysia, which specialize in information-technology products, get rates just as low. So do natural- resource exporters such as Saudi Arabia and Nigeria. Middle-income exporters that ship a broader variety of goods, such as China, Thailand, and Brazil, face rates typically between two percent and four percent -- above average but still not exorbitant. The least-developedAsian countries, however, take it on the chin. For Bangladesh, Cambodia, Nepal, Mongolia, and a few others, clothes make up 90 percent of all exports to the United States. So they face average tariff rates of 14.6 percent -- nearly 10 times the world average, and 15 times the rate for wealthy Western countries. Translated into real dollars, the disparities can be remarkable.As Table 3 notes, the U.S. now collects more tariff revenue from Bangladeshi goods than from French goods, even though Bangladesh exports $2 billion in goods a year to the United States and France $30 billion. Cambodia’s exports to the United States total $900 million andSingapore’s usually reach $15-$20 billion -- but the U.S. government collects nearly twice as much revenue from Cambodian goods as from Singaporean goods.

What explains the willingness to impose such massive economic costs on the poorest American citizens, the poorest developing countries, and the US and global economy as whole? Trade presents an exceedingly difficult collective action problem that makes those opposed to it much more political powerful than those in favor of free trade. Returning to the sugar example, each US citizen may be $21 more each year due to sugar trade, but that loss is disguised in hundreds or thousands of transactions containing sugar. However, the 2,261 people whose jobs were saved, and would be at risk from free trade have much more to lose. Their potential costs are concentrated and huge. Sugar workers will lobby much louder for protection that will the free traders.

It's still too early to predict that a Democratically-controlled Congress will scuttle free trade. Indeed, just recently leading Democrats declared that there would be no problem admitting Vietnam in to the WTO. But, free trade is far to important to this country, the international political and economic environments (let's not forget the Smoot-Hawley Tariff), and the country's and the world's poor to let it be undermined by economic and political nationalists. For those Democratic voters who did such a great job making your voices heard, don't drop the ball on this one.

Thursday, November 09, 2006

Over at TCS Daily, J. Pham and Michael Krauss have a piece warning about a troubling decision that soon-to-be Speaker of the House Representative Nancy Pelosi may be about to make. Pelosi is likely to give the chair of the House Permanent Select Committee on Intelligence, one of the most important Congressional committees related to national security issues, to Alcee Lamar Hastings (D-FL 23). Doing so is, of course, Pelosi's right and responsibility as Speaker. So what's the problem?

Hastings was impeached from the federal judgeship he held from 1979-1989.

Barely two years into office, "Judge" Hastings accepted a $150,000 bribe in exchange for giving a lenient sentence to two swindlers, then lied in subsequent sworn testimony about the incident. The case involved two brothers, Frank and Thomas Romano, who had been convicted in 1980 on 21 counts of racketeering. Together with attorney William Borders Jr., Hastings, who presided over the Romanos' case, hatched a plot to solicit a bribe from the brothers. In exchange for a $150,000 cash payment to him, Hastings would return some $845,000 of their $1.2 million in seized assets after they served their three-year jail terms.

Taped conversations between Hastings and Borders confirmed that the judge was a party to the plot. Hastings was also criminally prosecuted for bribery, but his accomplice Borders went to prison rather than testify against him. Hastings was acquitted thanks to Borders' silence. [Borders was then pardoned by President Clinton, confirming the wisdom of his refusal to testify. In a remarkable display of chutzpah, Borders then applied for reinstatement to the District of Columbia Bar, claiming that Clinton's federal pardon eliminated his local disbarment. The U.S. Court of Appeals for the D.C. Circuit did not agree, and the U.S. Supreme Court refused to hear his appeal. To former D.C. delegate Walter Fauntroy, Borders' case had a spiritual quality to it. "Being pardoned by the president is like being pardoned by Jesus," Fauntroy sermonized. Thankfully, the Supremes evidently disagreed with this "theology."]

"Be assured that I'm going to be a judge for life," Mr. Hastings told reporters in 1983 after his acquittal. But the arguments that swayed a Miami jury did not sway the Congress. The Democrat-controlled House of Representatives impeached Hastings for bribery and perjury by a lopsided vote of 413 to 3. Then the Democrat-controlled Senate convicted him on eight articles of impeachment by well over the required two-thirds majority in 1989. Thus Mr. Hastings became only the sixth judge in the history of our Republic (and only the third in the 20th Century) to be removed by Congress. He was, and is, an utter disgrace to the nation and to the legal profession. Among those voting to impeach him were Ms. Pelosi herself, Maryland Rep. Steny Hoyer, the Democratic whip who is likely to become the new House majority leader, and Mr. Hastings' fellow African-American Congressman, Michigan's John Conyers, who took pains to deny that race had anything to do with the removal of the bribe-taking jurist.

It is shocking to think that this man has been allowed to serve as one of nation's legislators. But it is not only horrifying but dangerous to give him a position of such important as the chair of the House intelligence committee. The position is, according to the article, a reward from Pelosi:

a payback to the Congressional Black Caucus, to whose support Pelosi owes her election as Minority Leader and whose members she angered by picking Ms. Harman to be ranking member over Georgia Rep. Sanford Bishop in 2003. The incoming Speaker must also mollify the Black Caucus for having pushed Louisiana Rep. William Jefferson (he of the frozen cash) off the Ways and Means Committee.

Hopefully, Pelosi will think about what such a move would mean. But let this be a lesson to all. If you thought that the Democrats would be "better" than the Republicans, think again. Politics is politics, and politicians are politicians. Regardless of party, they will vote for pork. Regardless of party, they will get involved in scandal and break ethical rules. So please, get off of your moral high horses.

Wednesday, November 08, 2006

The first casualty of the midterm elections is Secretary of Defense Donald Rumsfeld who has just announced he will resign. I called some time ago for Rumsfeld to step down, if only because as SecDef the burden of the poor decisions in Iraq ultimately rests with him. Rumsfeld will be replaced with Robert Gates, current president of Texas A&M University and former head of the CIA under George H. W. Bush. Gates is a fine, if pedestrian, choice. He is unlikely to bring any fresh thinking or ideas to the problems in Iraq, but at least Rumsfeld has finally paid the political price for his decisions.

Tuesday, November 07, 2006

the debate among senior U.S. military officials seems to be shifting away from staunch opposition, and a fresh assessment of the court seems to be underway.

The new attitude has been prompted in part by the court's record since it began operations three years ago; Chief Prosecutor Luis Moreno-Ocampo, an Argentine, has dismissed hundreds of petitions for cases against the United States. The cases were turned down for lack of evidence, lack of jurisdiction, or because of the United States' ability to conduct its own investigations and trials. Out of some 1,500 petitions to the chief prosecutor, almost half accused the United States of war crimes.

In a letter made public last year, Moreno-Ocampo's office said it was throwing out 240 such cases concerning the war in Iraq. Reviews of each claim determined that none fell within the court's jurisdiction, his letter said, because the United States is not a signatory.

A congressional study released in August said the ICC's chief prosecutor demonstrated "a reluctance to launch an investigation against the United States" based on allegations regarding its conduct in Iraq.

I have made clear numerous times my general skepticism about international legal bodies such as the ICC. I am not convinced that international tribunals are the most efficacious or just solutions to most problems. However, I have also made clear that I would like to see international organizations develop, in some way, in to stronger institutions that are capable of enforcing some kind of international law, including the ICC specifically. If the US can enter the ICC in a way that will not hinder its ability to project force, when needed, around the world, than US accession to the Court can provide increased legitimacy both to the Court and to the US as well.

It will not, however, become a panacea to the moral failings of international politics; powerful states will still be free to either remain outside of ICC jurisdiction, block investigations, or simply ignore the findings of the Court. As I mentioned in my series of "Big Stick" posts back in July, the US must work hard at building a web of institutions that connect states to one another. If institutions like the ICC are to have meaning even with US membership, then states like Russia and China should suffer for their non-participation or non-compliance. The US and other Western states must find ways to make participation in the global economy contingent on behavior in other fora; if you fail to meet your obligations in the ICC, for example, the WTO could authorize trade sanctions. Only when law is backed with sanction can it have meaning.

-- train 15,000 African professionals, send 100 senior agricultural experts to Africa, and set up 10 agricultural technology centers in Africa over the next three years.

-- build 30 hospitals and provide 300 million yuan (37.5 million U.S. dollars) in grants to help fight malaria.

-- dispatch 300 volunteers, build 100 rural schools, and increase the number of Chinese government scholarships to African students from 2,000 per year now to 4,000 per year by 2009.

-- increase to more than 440 from 190 the number of items which will not be taxed when imported to China from Africa. He did not provide details.

There's nothing in and of itself troubling about any of these deals. But taken in context of the larger strategic picture, they could spell trouble for American foreign policy, as well as for the broader agenda of liberal international security. We can see quite clearly how Chinese ties to Sudan have negatively impacted the ability of the UN and the West to effectively deal with the problem of Darfur. As Chinese influence in Africa grows, China will continue to gain more of a say in the political affairs of Africa, and as Darfur clearly demonstrates, China and the West still don't see eye to eye on all issues.

What can the West, and specifically the US, do to counter China's growing African presence? A few things. First, the US and the West should take steps to increase their influence there. I'm not a huge fan of debt forgiveness as in isolation it can create a moral hazard and contribute to bad governance. But, it's far past time for the US and other Western countries to stop protecting their agricultural and manufacturing sectors and open up those areas to the comparative advantages of African producers. As this year's Nobel Peace Prize made clear, the surest path to peace is economic development, and the surest path to economic development is innovation and free trade. Programs like the MilleniumChallengeAccount need to be expanded and strengthened, as they help provide economic improvements along with strengthening governance and democracy.

The US also needs to work more at connecting China to the larger globalized economy, making it clear that China's ability to profit from its relations with the West depend on China's overall strategic behavior. If China wants to continue to protect the Sudanese government, for example, it must realize that such behavior will be costly to its larger economy and efforts to enter into the globalized world. This strategy would pay dividends with North Korea as well, but Africa will, very likely, become increasingly important in a strategic sense in the future, not only as a latent source of economic growth, but also a nexus for security challenges, such as ethnic conflict and infectious disease.

Moving to counter China's African initative not only makes sense for the strategic interests of the US and its liberal democratic allies. It also makes sense of the long-suffering peoples of Africa.

UPDATE: To see how the Millenium Challenge Account grades the performance of the developing world, and what programs have already been put in place, go here.

Sunday, November 05, 2006

Despite all of the bad news coming from Iraq -- the mounting death toll of US soldiers, the relentless massacres, the political infighting between Shiite and Sunni -- comes something that should raise the spirits of everyone.

The only question now is whether Hussein should be hanged immediately, or if he should stand trial for the rest of his crimes. I've written before about this choice, and I think that now I lean towards continuing the trial. The new judges seem to have gotten the courtroom under control, and the insurgency has grown well beyond the point where executing Hussein would take some of the wind from its sails. So let history record and let all the world publicly consider Hussein's crimes. Besides, sitting in jail is probably worse for Hussein than being executed.